Cheque and Demand draft(DD) are negotiable instrument, both are mechanism used to make payments.A cheque is a Bill of Exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.The Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee bank acts as guarantor to make payment in full when the instrument is presented.

In business transaction cheque is not usually accepted as the drawer and payee and unknown and there will be credit risk. So, in such cases Demand draft where transfer of money is guaranteed.Here are few basic difference between cheque and DD1.) Cheque is issued by customer, whereas Demand draft issued by bank2.) In cheque payment is made after presenting cheque to bank, while in DD is given after making payment to bank.3.) Cheque can bounce due to insufficient balance . DD cannot be dishonored as amount is paid before hand.4.) Payment of cheque can be stopped by drawee, whereas payment cannot be stopped in DD.5.) A cheque can be paid to bearer or order. While, DD is paid to person on order.6.) In cheque drawer and payee are different person. In DD, both parties are banks.7.) A cheque needs signature to transfer amount, While DD does not require signature to transfer fundsHowever, banks do charge certain amount depending on the amount on Demand draft. Outstation cheque are also charged.

A cheque can be made payable to bearer but a Demand Draft cannot. A demand draft can be cleared in a specified branch of the issuer bank A cheque can get dishonored but Demand draft is always honored. An issuer party of the cheque is liable to the cheque and not backed by a Bank Guarantee, A demand draft is backed by a bank guaranteehttp://www.gktoday.in/difference-between-a-cheque-and-draft/

Drafts vs Checks

Any industry or business can produce a bank draft. A bank draft is a legitimate copy of a check that is created by the businessman or merchant and authorized by the bank but not created by the account holder. A bank draft does not have an original signature. It is normally signed by an automated machine. It is also based on real credit or savings in the account. Once the draft is produced, your real money is used.

A bank draft can be noted as a “bank’s check.” The money will be paid by the bank so that the account holder can redeem it as a draft. A bank draft is always a confirmed payment therefore it will not bounce. The bank takes the money in advance from the person who issues a draft and in return gives a bank’s check or draft for that amount. Drafts are a more reliable form of receiving payment than personal checks that may bounce. As mentioned, a draft is as good as cash. The bank writes the account holder’s draft and reliably takes out money from the account.

Checks are created by the account holder on funds inside the account or held in acquisition. It should be signed officially by the account holder before releasing. However, banks are allowed to seize back money or funds from a cleared check a week or two soon after if consequent transactions are accounted as fraud or counterfeit.

Checks attribute the name of the issuing bank which normally appears in the upper left-hand or upper center of the check. Furthermore, it includes enhanced security features including color-shifting ink, security watermarks, and thread special bond paper. Checks are well designed to decrease the susceptibility of counterfeit items. Some banks bond out the protection of their checking accounts and checks issued to their account holders. Checks may bounce, and they are also prone to other counterfeit and fraudulent activities.

Summary:

1.A bank draft is a legal copy of a check that is created by the merchant and then authorized by the bank but not created by the account holder. Checks have a clearing period before the issuance.2.Drafts are assured and confirmed money. Checks need time (if there are funds) before they can be cleared and approved.3.Drafts are highly protected by the bank. They also avoid risks in taking out money while checks are prone to fraudulent activities and counterfeiting acts.4.A bank draft reliably takes out money from the account while checks need authorization by the bank and the account holder.5.A bank draft does not have a signature; it normally is signed by an automated

machine. Checks are signed by the account holder before the release.6.Drafts are based on real credit and money in the account; once the draft is produced your money is used. Checks are assigned payments; therefore, funds can be insufficient. It can bounce.

A bank draft is a written order in the form of a check instructing the payment of money from one bank account to another. The bank draft is drawn by one bank against funds that it has deposited in an account at a second bank. The first bank is giving its consent for the second bank to release funds or make payment to the individual named on the bank draft. A bank draft is usually more acceptable to a payee than a personal check. Other terms for bank draft are draft, bill of exchange, order of payment, banker's draft and negotiable instrument. A bank draft is similar in form to the common bank check. Frequently, a bank draft is used to transfer funds and to settle outstanding balances between banks.

Similarities

They are Negotiable Instrument.

Addressing the drawee to make payment. Always in writing. Signed by the drawer of the instrument. Express order to pay a certain amount.

Difference Between Cheque and Bill of Exchange

April 7, 2015 By Surbhi S Leave a Comment

‘Cheque’ is an instrument which contains an unconditional order, drawn on a banker, directing to pay a certain sum of money to the person whose name is specified on the instrument. ‘Bill of Exchange’ is a document contains an unconditional order, directing a person, to pay a certain amount to a specified person. These two terms sounds the same, which becomes the cause of confusion for many people. Come, let’s start understanding the difference between Cheque and Bill of Exchange.

Content: Cheque Vs Bill of Exchange

1. Comparison Chart 2. Definition 3. Key Differences 4. Similarities 5. Conclusion

Comparison Chart

BASIS FOR COMPARISON

CHEQUE BILL OF EXCHANGE

Meaning A document used to make easy payments on demand and can be transferred through hand delivery is known as cheque.

A written document that shows the indebtedness of the debtor towards the creditor.

Defined in Section 6 of The Negotiable Instrument Act, 1881

Section 5 of The Negotiable Instrument Act, 1881

Validity Period 3 months Not Applicable

Payable to bearer on demand

Always Cannot be made payable on demand as per RBI Act, 1934

Grace Days Not Applicable, as it is always payable at the time of presentment.

3 days of grace are allowed.

Acceptance A cheque does not require acceptance. Bill of exchange needs to be accepted.

Stamping No such requirement. Must be stamped.

Crossing Yes No

BASIS FOR COMPARISON

CHEQUE BILL OF EXCHANGE

Drawee Bank Person or Bank

Noting or Protesting

If the cheque is dishonoured it cannot be noted or protested

If a bill of exchange is dishonoured it can be noted or protested.

Definition of Cheque

A cheque is a type of bill of exchange, used for the purpose of making payment to any person. It is an unconditional order, addressing the drawee to make payment on behalf the drawer, a certain sum of money to the payee. A cheque is always payable on demand, i.e. the amount is paid to the bearer of the instrument at the time of presentment of the cheque. It is always in writing and signed by the drawer of the instrument.

There are three parties  involved in case of cheque:

Drawer: The maker or issuer of the cheque. Drawee: The bank, which makes payment of the cheque.

Payee: The person who gets the payment of cheque or whose name is mentioned on the cheque.

It should be noted that the issuer must have an account with the bank. There is a specified time limit of 3 months, during which the cheque must be presented for payment. If a person presents the cheque after the expiry of 3 months, then the cheque will be dishonoured. The various types of cheques are:

Electronic Cheque: A cheque in electronic form is known as electronic cheque.

Truncated Cheque: A cheque in paper form is known as truncated cheque.

Definition of Bill of Exchange

A bill of exchange is a negotiable instrument, contains an unconditional order, directing the drawee to pay a certain sum of money to payee addressed in the instrument. The bill is made and signed by the drawer and accepted by the drawee. It contains a pre-determined date on which the payment is to be made to the payee. It can be payable on demand when the bill is discounted with the bank. The parties to the bill of exchange must be certain.

There are three parties involved in the bill of exchange, they are:

Drawer: The maker of the bill of exchange. Drawee: A person on whom the bill is drawn, i.e., the person who

gives acceptance to make payment to the payee. Payee: The person who gets the payment.

There are three days of grace allowed to the drawee, to make payment to the payee, when it becomes due. You might wonder about the days of grace, let’s understand it with an example: A bill is drawn on 5-10-2014 in the name of X, to make payment to Y after 3 months. The bill will become due on 5-01-2015, while the date of maturity is 8-01-2015 because of 3 days of grace are added to it. The following are the types of bill of exchange:

Inland Bill Foreign Bill Time Bill

Demand Bill Trade Bill Accommodation Bill

Key Differences Between Cheque and Bill of Exchange

1. An instrument used to make payments, that can be simply transferred by hand delivery is known as cheque. An acknowledgement prepared by the creditor to show the indebtedness of the debtor who accepts it for payment is known as a bill of exchange.

2. A Cheque is defined in section 6 while Bill of Exchange is defined in section 5 of the Negotiable Instrument Act, 1881

3. The drawer and payee are always different in case of cheque. In general, drawer and payee are the same persons in case of bill of exchange.

4. The stamp is not required in cheque. Conversely, a bill of exchange must be stamped.

5. A cheque is payable to the bearer on demand. As opposed to bill of exchange, it cannot be made payable to the bearer on demand.

6. Cheque can be crossed but a Bill of Exchange cannot be crossed.

7. There is no days of grace allowed in cheque, as the amount is paid at the time of presentment of cheque. 3 days of grace are allowed in bill ofExchange.

8. A cheque does not need acceptance whereas a bill requires to be accepted by the drawee.

A cheque differs from a bill of exchange in the following respects:

1. Drawee:

A cheque is always drawn on a bank or a banker while a bill of exchange can be drawn on any person including a banker.

2. Acceptance:

A cheque does not require any acceptance while a bill must be accepted before the drawee can be made liable upon it.

3. Payment:

A cheque is payable immediately on demand without any days of grace, but a bill of exchange is normally entitled to three days of grace unless it is payable on demand.

4. Crossing:

A cheque may be crossed but there is no such provision in the case of a bill of exchange.

5. Notice of dishonor:

When a cheque is not met, notice of dishonor is not necessary. Want of assets in the hands of the banker is sufficient notice. It is necessary to give a notice of dishonor in order to make the drawer of a bill liable.

6. Payable to bearer on demand:

A cheque can be drawn payable to bearer on demand. But a bill of exchange cannot be so drawn.

7. Stamp:

A bill of exchange must be stamped, whereas a cheque does not require any stamp.

8. Countermanding payment:

A cheque may be revoked by countermand of payment. The payment of a bill, however cannot be countermanded.

9. Noting and protesting:

A cheque is not noted or protested for dishonor and is generally inland.

10. Presentment:

A bill of exchange must be duly presented for payment otherwise the drawer will be discharged. The drawer of a cheque is not discharged by failure of the holder to present it in due time unless the drawer has sustained damage by the delay.

11. Protection:

A banker is given statutory protection with regard to payment of cheques in certain circumstances. No such protection is available to the drawee or acceptor of a bill of exchange.

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Cashier's ChecksA cashier's check is a check purchased with cash or a debit from an account housed at the bank where the check originates. The check is issued from one of the financial institution's special accounts reserved for the sale of cashier's checks, made out to the payee and signed by a bank officer.

Official, Treasury, and Teller's ChecksAlthough called by different names, these checks are all cashier's checks. Regional vernacular as well as titles of bank positions account for the differences, as really they are just a matter of preference and impart no additional meaning.

Certified Checks

With a certified check, the bank debits the money from the account holder and holds it in suspense so it cannot be spent. In turn, the bank provides a guarantee that the check will clear.

Money OrdersMoney orders are typically only available for maximum amounts of $1,000 or less. A money order is purchased for a specific face value out of a specialized money order account at the financial institution. It is signed by the purchaser and the information is filled in by them, unlike a cashier's check which is issued by the bank.

Traveler's ChecksWhen a bank sells traveler's checks, these are usually provided through another company such as American Express or Visa. Traveler's checks are issued in predetermined denominations and are signed over to payees. Traveler's checks are typically used in place of cash.

Personal CheckA personal check is the means for the checking account holder to pay the money. Most banks allow you to write as many checks as you want per month without a fee, but some banks set a limit on the number of checks per month and charge a fee if you exceed it.

Business CheckBusiness owners can open business checking account and issue business checks. Business checks are similar to personal checks. The account owner pays for supplies, business expenses and payroll with business checks. Most banks charge monthly fees for business checking accounts. They can also limit the number of checks the owner can write per month.

Cashier's CheckA cashier's check is a check by the bank on its own funds. The bank takes the money out of an account holder's account and issues the check from its own account. Businesses prefer cashier's checks for large purchases. Cashier's checks take less time to clear when compared with personal checks.

Certified CheckA certified check is similar to a cashier's check. The bank withdraws the funds from the holder's account and places them into a separate account until the certified check clears. Some banks charge a fee for a certified check.

Traveler's CheckTraveler's checks come in specific denominations and were convenient to use during trips before credit and debit cards have rendered them nearly obsolete. The bank can replace travelers checks fast if you lose them, but you need to order traveler's checks ahead of time, pay fees and get enough checks for the trip. Debit and credit cards have become a more convenient substitute for travelers checks.

Money OrderA money order is a form of a prepaid check. You can buy it at a financial institution or a post office, but you do not need to have an account there. Money orders are a convenient replacement for cash. Because you should not mail cash, you can purchase and mail a money order, which never expires. The limit on one money order is $1,000. The post office allows you to purchase up to $3,000 in money orders per day without a picture ID and charges a small fee for them.

Personal checks

Trav Check